Bellatrix Exploration announces material reserves increases (up 103%), posting $9.57/boe finding and development costs

TSX: BXE

CALGARY, March 6, 2014 /CNW/ - Bellatrix Exploration Ltd. ("Bellatrix" or the "Company") announces the results of an independent reserve evaluation effective December 31, 2013. The report was completed by Sproule Associates Limited ("Sproule").  The evaluation encompasses 100% of Bellatrix's oil and gas properties and was prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101").

Bellatrix benefitted from the largest capital program since conversion to a growth-oriented exploration and production company as it grew 103% to a total of 212 million boe proved and probable ("2P") reserves with a 10% NPVBT of $2.1 billion in 2013.

Proved ("1P") reserves grew 124% year over year to 124 million boe.

In 2013, the Company spent $281 million developing its resource play assets and $518 million (net of dispositions) on acquiring additional Cardium and Mannville production and development acreage.  Resultant growth contributed to an 82% increase in the Company's net asset value to $1.95 billion, equivalent to $11.40/share using a 10%/year discount to future net revenue.

The Company replaced 1,452% of total production in 2013 with new proved and probable reserves at a finding, development and acquisition ("FD&A") cost of $7.24/boe, excluding future development capital ("FDC") requirements.  Including FDC requirements, FD&A totaled $9.67/boe.  Annual production was up 31% in 2013 to 8.0 million boe from 6.1 million boe.

The Company established 2P Recycle Ratio of 4.44x excluding FDC and acquisitions.

As at December 31, 2013 proved plus probable reserves were comprised of 78 million barrels of oil and natural gas liquids as well as 801 billion cubic feet of natural gas, with a 37% liquids weighting on a boe basis.

The Company's calculated reserve life index improved to 13.7 years for 2P reserves and 9.1 years for 1P reserves.

A conference call to discuss Bellatrix's annual financial and reserves results will be held on March 13, 2014 at 9:00 am MDT/11:00 am EDT. To participate, please call toll-free 1-888-231-8191 or 647-427-7450. The conference call will also be recorded and available by calling 1-855-859-2056 or 403-451-9481 and entering passcode 33160756 followed by the pound sign.

KEY 2013 ACHIEVEMENTS

SELECT 2013 OPERATING RESULTS

To assist in interpretation of the Company's reserves and key achievements, Bellatrix releases select 2013 unaudited operating results ahead of full year-end 2013 financial results including data on capital expenditures, cash flow from operating activities, and drilling results.

CAPITAL EXPENDITURES

The $812 million capital program for the year ended December 31, 2013 was financed from funds flow from operations, common share offering and bank debt.

RECONCILIATION OF CASH FLOW FROM OPERATING ACTIVITIES AND FUNDS FLOW FROM OPERATIONS

Bellatrix generated funds flow from operations of $143.5 million ($1.27 per basic share and $1.24 per diluted share) for the year ended December 31, 2013, an increase of 29% from $111.0 million ($1.03 per basic share and $0.96 per diluted share) for 2012.  Bellatrix's cash flow from operating activities of $126.3 million ($1.12 per basic share and $1.09 per diluted share) for the year ended December 31, 2013 increased by 15% from the $109.3 million ($1.02 per basic share and $0.95 per diluted share) generated in 2012.  The increase in funds flow from operations was primarily due to increased light oil, condensate, NGL, and natural gas prices positively impacting revenues and netbacks, partially offset by a higher net realized loss on commodity contracts, increased general and administrative expenses, operating, transportation, and royalties expenses, and the impact of lower heavy oil commodity prices.

Bellatrix maintains a commodity price risk management program to provide a measure of stability to funds flow from operations.  Unrealized mark-to-market gains or losses are non-cash adjustments to the current fair market value of the contract over its entire term and are included in the calculation of net profit.

JOINT VENTURES / ACQUISITIONS / DISPOSITIONS

Bellatrix is executing all three of its Joint Venture programs in line within expectations and the impact of the Joint Ventures has been incorporated into the 2013 operating results and reserves, as of December 31, 2013.  This includes:

• 7.42 net Grafton JV wells drilled of the 58 net Cardium and Mannville program,
• 22 spud wells of a 63 well Cardium Troika JV program, and,
• The completed disposition associated with the Daewoo/Devonian partnership.  Eleven gross partnership wells from the 70 well partnership program have been drilled to year-end, 2013.

The Troika Joint Venture is scheduled to be materially complete by December 31, 2014.  The Grafton Joint Venture is planned for completion on or before June 30, 2015, subject to a Grafton election to extend the program by a further $50 million (Grafton share), extending the venture to December 31, 2015.  The Daewoo/Devonian partnership drilling program is scheduled to be complete by December 31, 2015.

2013 RESERVES

Bellatrix engaged Sproule to complete a reserve report in accordance with NI 51-101, on 100% of Bellatrix's oil and gas properties effective December 31, 2013.

Highlights of Bellatrix's December 31, 2013 reserves and 2013 reserve additions include:

• 212 million boe total company interest proved and probable reserves, and 124  million boe total company interest proved reserves as at December 31, 2013, representing 103% and 124% year over year growth in 2013, respectively.
  
  
• $2,090 million net present value of future net revenue of working interest reserves before tax at 10% discount rate up from $1,107 million posted as of December 31, 2012. This growth contributes to an 82% increase in Bellatrix's net asset value, as at December 31, 2013 to $11.40 per basic share outstanding based on the Sproule evaluation of proved and probable reserves at a 10% discount rate.
  
  
• 1,452% replacement of production with 2P company interest reserve additions in year ended 2013.
  
  
• $13.76/boe FD&A for proved reserves including changes to future development capital and $11.17/boe FD&A for 1P reserves excluding changes to FDC for the year ended 2013.
  
  
• $9.67/boe FD&A for total proved and probable reserves including changes to future development capital and FD&A of $7.24/boe for total 2P reserves excluding changes to FDC for the year ended 2013.
  
  
• $9.01/boe 3-year 2P FD&A including FDC.
  
  
• 13.7 year reserve life index on a total working interest proved and probable basis at December 31, 2013 based on Sproule's 2014 forecasted average production of 42,389 boe/d.
  
  
• 335 gross (238.4 net) Cardium evaluated future undrilled horizontal locations.
  
  
• 184 gross (109.7 net) Mannville evaluated future undrilled horizontal locations.
  
  

NET ASSET VALUE - PROVED PLUS PROBABLE

The following table of net asset value, as at December 31, 2013, is based on the Sproule evaluation of future net revenue of the Company's proved plus probable reserves before tax, which does not represent fair market value and does not take into account possible reserve additions from reinvestment of cash flow in existing properties.

NET PRESENT VALUE OF FUTURE NET REVENUE ("NPV")

The forecast prices used in Sproule's reserve report effective December 31, 2013 (the "Sproule Report") were an average of the forecast prices published by Sproule, GLJ Petroleum Consultants Ltd. and McDaniel & Associates Consultants Ltd., as at January 1, 2014 (the "Consultants' Average Forecast Prices").  It should not be assumed that the NPV estimated by Sproule represents the fair market value of the reserves.

Estimated future net revenues are stated before deducting future estimated site restoration costs but are reduced for estimated future abandonment costs, the Saskatchewan Capital Tax and estimated capital for future development associated with the reserves.  In the Sproule Report, the net total future capital over the life of the reserves associated with the proved reserves is $787 million ($675 million discounted at 10%) and $1,285 million ($1,097 million discounted at 10%) for the total proved and probable reserves. The change in 2013 net total future capital over the life of the reserves associated with the proved reserves is $241 million ($192 million discounted at 10%) and $335 million ($274 million discounted at 10%) for the total proved and probable reserves. Calculated changes in net future capital exclude future capital from acquired properties.

SUMMARY OF NPV BEFORE INCOME TAXES^{1, 2}

SUMMARY OF NPV AFTER INCOME TAXES^{1, 2, 3}

PROVED PLUS PROBABLE FD&A COSTS^{1, 2}

PROVED FD&A COSTS^{1, 2}

RESERVE LIFE INDEX

Bellatrix's reserve life index has been determined for proved and proved plus probable working interest reserves using forecast prices and costs.  The reserve life index for 2013 below is calculated by dividing reserves as at the effective date of the Sproule Report, December 31, 2013, by 2014 forecasted average production of 42,389 boe/d proved plus probable and 37,311 boe/d proved, as set forth in the Sproule Report, representing a measure of the amount of time production could be sustained at the production rates based on the reserves at the applicable point in time.

RECYCLE RATIO (OPERATING NETBACK¹/FD&A COST)

The recycle ratio is a measure for evaluating the effectiveness of a company's re-investment program. The ratio measures the efficiency of capital investment. It accomplishes this by comparing the operating netback per boe to that year's reserve FD&A cost per boe. In 2013, the Company completed a large acquisition at FD&A metrics that, while completed at excellent metrics below $10/boe, were still considerably above those of the Company's exploration and development program.  For this reason, recycle ratio information is included for both the total capital program and the exploration and development program alone.

RESERVES RECONCILIATION

Reserves included herein are stated either on a company interest basis (working interest plus royalty interests prior to deduction of royalty burdens), a gross (working interest excluding royalty interests and burdens) or a net (working interest plus royalty interest less royalty burdens) basis as defined in NI 51-101.  "Company interest" is not a term defined by NI 51-101 and as such the estimates of company interest reserves herein may not be comparable to estimates prepared in accordance with NI 51-101 or to other issuers' estimates of company interest reserves.

At December 31, 2013 the Company's proved plus probable company interest reserves as evaluated by Sproule, using forecast prices and costs, were 211,536 mboe, an increase of 103% compared to 104,258 mboe at December 31, 2012.  By commodity type, natural gas made up 63% and oil and natural gas liquids 37% of total proved plus probable reserves.  At December 31, 2013, the Company's total proved company interest reserves were 124,154 mboe, an increase of 124% compared to 55,490 mboe at December 31, 2012.

In addition to the information disclosed herein, more detailed information on the Company's reserves will be included in the Company's Annual Information Form.

Reserves, at December 31, 2013, as evaluated by Sproule, are summarized below and in the following tables.

TAX POOLS

At December 31, 2013, the Company had approximately $1.2 billion in tax pools available for deduction against future income as follows:

FUTURE DEVELOPMENT COSTS USING FORECAST PRICES AND COSTS

At year-end, 2013, Sproule had evaluated certain future development opportunities on Company lands including 335 gross (238 net) future undrilled Cardium horizontal locations and 184 gross (110 net) evaluated future undrilled Mannville horizontal locations.  Of the 335 Cardium locations, 228 were assigned proved and probable reserves, with 107 assigned probable reserves only.  Of the 184 Mannville locations, 112 were assigned proved and probable reserves, with the remaining 72 assigned probable reserves only.

For purposes of assigning net present value of future revenue, future development locations were committed as detailed in the following table.  On the basis of current cash flow projections, the schedule, and resulting NPV, can be considered conservative, as the future development inventory represents only approximately two years of reinvested cash flow.

RESERVE REPORT COMMODITY PRICING

The following is a summary of the Consultants' Average Forecast Prices as at December 31, 2013:

Weighted average historical prices realized by Bellatrix (before commodity price risk management contracts) for the year ended December 31, 2013, were $3.49/mcf for natural gas, $92.66/bbl for light, medium gravity crude oil and condensate, $68.41/bbl for heavy oil and $43.85/bbl for natural gas liquids (excluding condensate).

RESERVES COMMITTEE

Bellatrix has a reserves committee, comprised of independent board members, that reviews the qualifications and appointment of the independent reserve evaluators. The committee also reviews the procedures for providing information to the evaluators.  All booked reserves are based upon annual evaluations by the independent qualified reserve evaluators conducted in accordance with the COGE (Canadian Oil and Gas Evaluation) Handbook and NI 51-101. The evaluations are conducted using all available geological and engineering data. The reserves committee has reviewed the reserves information and approved the reserve report.

LAND

As at December 31, 2013, Bellatrix had over 416,630 net undeveloped acres in Alberta, British Columbia and Saskatchewan.

OPERATIONS OUTLOOK

Bellatrix continues to focus on growth by development of its large inventory of Cardium and Mannville assets geological prospects. The Company also continues to focus on adding Cardium and Mannville prospective lands.

• In 2014 Bellatrix continues to be active drilling with 10-12 rigs operating in its two core resource plays, the Cardium  and Mannville formations  All drilling is conducted using horizontal drilling and multi-fracturing technology.  With the closing of the acquisition of Angle Energy Inc. ("Angle") in December 2013, Bellatrix is the second largest Cardium land holder with 338 net sections in the Cardium play.  An initial gross budget of $610 million has been set for fiscal 2014 (including JV partner capital) with a net capital budget of $370 million.
  
  
• Bellatrix processes its Ferrier area gas production utilizing seven third party operated midstream Gas Plants.  The capacity of the third party infrastructure and plants has become constrained due to both Bellatrix's and local industry partners' successful drill bit programs. In mid-December 2013 the midstream operator restricted gas processing capacity thereby limiting Bellatrix to 38,000 boe/d.  This restriction has not been removed and has been exasperated by two separate incidents.  The first was an extended freeze off through most of January 2014 in the main plant inlet gathering system pipeline for the Brazeau Gas Plant.  Secondly, an electric driver failure on the refrigeration train at the Alder Flats Gas Plant for most of February reduced plant capacity by 37 mmcfd of which 15 mmcfd was Bellatrix's share.  The combined effect of these restrictions will result in Bellatrix reducing its first quarter 2014 and annual 2014 average production guidance to +/-36,000 boe/d and 42,500 to 43,500 boe/d respectively.  2014 Cash flow forecasts, however, for the quarter and year remain unchanged as higher commodity prices are expected to offset the aforementioned restricted production. To mitigate future disruptions in processing the Company's natural gas assets, Bellatrix and the Blaze Gas Plant in West Pembina are currently installing a 60 km pipeline to feedstock the plant from the Ferrier Area.  The new gathering pipeline will be commissioned in early April 2014 providing additional plant processing capacity of up to 120 mmcfd.  Bellatrix has between 5,000 and 6,000 boe/d behind pipe to bring onto production as the restrictions are removed.  The Company has also initiated construction of a 100% working interest Deep Cut Gas Plant in the Alder Flats Area that will process 110 mmcfd and is expected to be commissioned on or before July 1, 2015.  Plans are underway to potentially double the Bellatrix facility to 220 mmcfd in early 2016.
  
  
• The 2014 net capital budget of $370 million is comprised of $250 million drilling and completion costs, $100 million facility and infrastructure costs and $20 million land, geological and other related costs.  The Company plans to drill/participate in 146 gross (76.27 net) wells in 2014 resulting in 115 gross (65.71 net) Cardium oil and gas wells and 31 gross (10.56 net) Mannville condensate-rich gas wells.
  
  
• As at December 31, 2013, Bellatrix has approximately 416,631 net undeveloped acres and, including all opportunities, has in excess of 1,251 net exploitation drilling opportunities identified.
  
  
• The Company's budgeted 2014 capital program will be funded from the Company's cash flows and to the extent necessary, bank indebtedness, based on the current economic conditions and Bellatrix's operating forecast for 2014.  As at December 31, 2013, approximately $212.4 million or 42% was undrawn under the existing $500 million credit facilities and is available to fund Bellatrix's ongoing capital spending and operational requirements.

COMMODITY RISK MANAGEMENT CONTRACTS

Bellatrix has the following crude oil and natural gas commodity price risk management contracts in place for 2014.  The conversion of $/GJ to $/mcf is based on an average corporate heat content rate of 40.8Mj/m³.

Based upon fourth quarter December 31, 2013 production volumes of approximately 32,500 boe/d, annualized for 2014 and reflecting a full fourth quarter production volumes from Angle, Bellatrix has put in price protection on approximately 66% of 2014 production volumes, 69% for the first quarter and 68% for the remaining three quarters of 2014 production volumes. Bellatrix has put in price protection on approximately 65.8% of 2014 production volumes, 69% for first quarter and 64.5% for the remaining three quarters of 2014 production volumes.

Bellatrix continues to focus on growth by development of its core Cardium and Mannville assets utilizing its large inventory of geological prospects. The Company has developed an inventory of 742 net remaining Cardium locations, 381 net Notikewin/Falher and 128 other Mannville locations representing a net remaining investment of $4.97 billion (based on current costs). Bellatrix has approximately 416,631 net undeveloped acres and including all opportunities of approximately 2,000 net exploitation drilling opportunities identified, with capital requirements of $10.1 billion representing over 30 years of drilling inventory based on current annual cash flow and costs.  The Company continues to focus on adding Cardium and Mannville prospective lands.

Bellatrix Exploration Ltd. is a Western Canadian based growth oriented oil and gas company engaged in the exploration for, and the acquisition, development and production of oil and natural gas reserves in the provinces of Alberta, British Columbia and Saskatchewan.  Common shares of Bellatrix trade on the Toronto Stock Exchange ("TSX") and on the NYSE MKT under the symbol BXE.

All amounts in this press release are in Canadian dollars unless otherwise identified.

READER ADVISORIES:

CONVERSION:  The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent (6 mcf/bbl) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.  All boe conversions in this report are derived from converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

UNAUDITED 2013 FINANCIAL INFORMATION: As Bellatrix  plans to announce its audited 2013 financial results on or about March 13, 2014, certain financial information for the year ended December 31, 2013 disclosed herein, or used in various calculations herein, is based on unaudited information and has been utilized by Bellatrix in this release to facilitate the discussion with respect to the performance of our capital program. Readers are advised that these financial estimates are subject to audit and may be subject to change as a result, and such changes could be material.

ADDITIONAL GAAP MEASURES:  This press release  contains  the term "funds flow from operations" which should not be considered an alternative to, or more meaningful than "cash flow from operating activities" as determined in accordance with generally accepted accounting principles ("GAAP") as an indicator of the Company's performance. Therefore reference to funds flow from operations or funds flow from operations per share may not be comparable with the calculation of similar measures for other entities. Management uses funds flow from operations to analyze operating performance and leverage and considers funds flow from operations to be a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and to repay debt.  The reconciliation between cash flow from operating activities and funds flow from operations can be found in this press release.   Funds flow from operations per share is calculated using the weighted average number of shares for the period.

This press release also contains the term net debt. Therefore reference to the additional GAAP measures of net debt may not be comparable with the calculation of similar measures for other entities.  The Company's calculation of net debt includes long-term debt and the net working capital deficiency (excess). The net working capital deficiency (excess) excludes short-term commodity contract assets and liabilities, current finance lease obligation, and current deferred lease inducements.

NON-GAAP MEASURES: This press release also contains the term of operating netbacks, which is not a recognized measure under GAAP.  Operating netbacks are calculated by subtracting royalties, transportation, and operating expenses from revenues before other income.  Management believes this measure is a useful supplemental measure of the amount of revenues received after transportation, royalties and operating expenses.  Readers are cautioned, however, that this measure should not be construed as an alternative to net profit or loss determined in accordance with GAAP as a measure of performance.  Bellatrix's method of calculating this measure may differ from other entities, and accordingly, may not be comparable to measures used by other companies.

FORWARD LOOKING STATEMENTS:  Statements in this document may contain forward-looking information including management's assessment of future plans and operations, expected 2014 and Q1 2014 average production, reserve estimates, anticipated additional drilling locations, the total future capital associated with development of drilling locations and reserves, 2014 capital expenditures and expected amount of total program including capital to be invested by the JV partner, method of funds thereof and nature of expenditures, infrastructure and facilities plans, timing thereof and impact on production and timing of release of 2013 financial results. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company. These risks include, but are not limited to: the risks associated with the oil and gas industry; commodity prices; risks that the joint venture transaction will close when expected or at all, and exchange rate changes. Industry related risks could include, but are not limited to: operational risks in exploration; development and production; delays or changes in plans; risks associated to the uncertainty of reserve estimates; health and safety risks, and; the uncertainty of estimates and projections of production, costs and expenses. The recovery and reserve estimates of Bellatrix's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. In addition, forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information but which may prove to be incorrect. Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which the Company  operates; the timely receipt of any required regulatory approvals; the ability of the Company  to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which the Company  has an interest in operating the field in a safe, efficient and effective manner; the ability of the Company  to obtain financing on acceptable terms; that the joint venture transaction will close when expected and on the terms expected; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development of exploration; the timing and costs of pipeline, storage and facility construction and expansion and the ability of the Company  to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company  operates; and the ability of the Company  to successfully market its oil and natural gas products. Readers are cautioned that the foregoing lists of factors and assumptions are not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), at the Company's website (www.bellatrixexploration.com). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

SOURCE Bellatrix Exploration Ltd.